24 May 2008

By Alex Dunnin

Financial Standard - Friday, 23 May 2008

Emissions trading won’t lower emissions production as all it does is force up the profits of carbon producers particularly energy producers, argues the German MP who pioneered their feed-in tariff electricity system.

Hans –Josef Fell, a leading Greens MP from the German parliament told Financial Standard that if the goal is fighting climate change then the “feed-in tariff” system is a much better solution.

Fell is the MP who introduced the private members bill in 2000 that led to the German national law requiring their country to have among the most aggressive carbon reduction targets in the world. His views about emissions trading challenge those of the Productivity Commission that believe it will be so successful at cutting greenhouse gases the government will be able to wind back other alternative energy schemes.

“A number of existing greenhouse policies will no longer be justified and could prove counterproductive,” said the Commission in a statement.

Explaining his reasons for the German legislation, Fell said, “What we had to do was create the conditions to make investing in renewables attractive,” he said. “This encouraged innovation and promoted mass production.”

“Politicians need to create a framework for companies to invest in,” said Fell.

The “feed-in tariff” system is when households are paid for the excess electricity they generate using local solar or wind power generation that can then be fed back into the grid.

It become so effective that Fell said last year it lead to a 100 million tonne reduction in carbon emissions in Germany whereas emissions trading only lead to a 9 million tonne reduction.

Given that carbon production is now trading in Australia at $19 per tonne, this means the 10-to-one efficiency ratio of feed-in tariffs compared to emissions trading would have saved the German economy the equivalent of $1.8 billion in abatement costs notwithstanding the current European price of carbon production is nearly 60 per cent higher than the Australian price.

This efficiency premium is why the feed-in tariff system is now used in 50 countries, said Fell.

Despite this German success of feed-in tariffs, Australia’s problem is that 90 per cent of electricity production in a State like NSW is generated burning coal. It means the debate in Australia is really about large-scale base load energy production.

But Fell dismisses the criticism as short sighted even though he can only point to wind power creating power stations capable of producing just 5 megawatts in electricity output, though a small scale in Blayney in NSW produces 10 megawatts of power.

By way of contrast, mainstream power stations like the Liddell power station in Muswellbrook NSW produces 2000 megawatts and the entire Snowy Hydro system can produce 3,800 megawatts when in full operation. German wind power stations in aggregate however already have output capacity, according to Invest in Germany, of 22,000 megawatts.

A local Australian example that supports Fell's thesis is the 154 megawatt solar power station being developed in Western Victoria, the largest solar farm in the world, for a cost of $420 million, which is big enough to contribute to the national grid and support the baseload.

Fell’s Australian visit coincides with the intensifying debate around emissions trading especially regarding how it is expected to increase coal-generated electricity prices by around 17 per cent.

But this could create an incentive for carbon neutral electricity to compete head to head at a considerable price discount, the theory being that traditional power companies will be forced to improve (ie lessen) their carbon production footprint to lower their production costs and stay competitive.